2. Stock-Based Compensation and Earnings Per Share

On May 12, 2009, the Company adopted The St. Joe Company 2009 Equity Incentive Plan whereby options, stock appreciation rights, restricted stock, restricted stock units and performance awards may be granted to directors and employees. The 2009 Equity Incentive Plan provides for the issuance of a maximum of 2.0 million shares of the Company's common stock. As of March 31, 2012, 1.5 million shares remained available for issuance under the 2009 Equity Incentive Plan.

Stock-Based Compensation

The changes to the composition of the Company's board of directors which occurred during the first quarter of 2011 constituted a "change in control event" under the terms of certain of our incentive plans. As a result, during March 2011, the Company accelerated the vesting of approximately 300,000 restricted stock units resulting in $6.2 million in accelerated stock compensation expense.

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is typically recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. Stock-based compensation cost may be recognized over a shorter requisite service period if an employee meets retirement eligibility requirements. Upon exercise of stock options, the Company will issue new common stock. Additionally, the 15% discount at which employees purchased the Company's common stock through payroll deductions was recognized as compensation expense. The Company discontinued the employee stock purchase plan as of July 1, 2011.

Service-Based Grants

A summary of service-based restricted stock unit activity as of March 31, 2012 and changes during the three month period are presented below:


Service-Based Restricted Stock Units	Number of Units			Weighted Average Grant Date Fair Value
Balance at December 31, 2011		37,815		$	26.99
Granted		—			—
Vested		—			—
Exercised		(24,076	)		21.65
Forfeited		(1,656	)		21.52

Balance at March 31, 2012		12,083		$	21.52

As of March 31, 2012, there was less than $0.1 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to restricted stock unit and stock option compensation arrangements which will be recognized over a weighted average period of four years.

Market Condition Grants

From time to time the Company has granted to select executives and other key employees restricted stock units whose vesting is based upon the achievement of certain market conditions, which are defined as the Company's total shareholder return as compared to the total shareholder return of certain peer groups during a three year performance period.

The Company used a Monte Carlo simulation pricing model to determine the fair value of its market condition awards. The determination of the fair value of market condition awards is affected by the stock price as well as by assumptions regarding a number of other variables. These variables included expected stock price volatility over the requisite performance term of the awards, the relative performance of the Company's stock price and shareholder returns to those companies in its peer groups and a risk-free interest rate assumption. Compensation cost is recognized regardless of the achievement of the market condition, provided the requisite service period is met.

A summary of the activity for market condition restricted stock units during the three months ended March 31, 2012 is presented below:


Market Condition Restricted Stock Units	Number of Units			Weighted Average Grant Date Fair Value
Balance at December 31, 2011		23,192		$	15.69
Granted		—			—
Vested		—			—
Forfeited		(23,192	)		15.69

Balance at March 31, 2012		—		$	—

Total stock-based compensation recognized in the consolidated statements of operations was as follows:


	Three Months Ended March 31,
	2012		2011
Stock-based compensation expense	$	491	$	8,472

Included in compensation expense for the three months ended March 31, 2012 is approximately $0.6 million in compensation related to the issuance of 36,023 immediately vesting common shares issued to the Chief Executive Officer of the Company in lieu of a cash bonus.

Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated by dividing net income (loss) by the average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period, including all potentially dilutive shares issuable under outstanding stock options and service-based restricted stock units. Stock options and restricted stock units are not considered in any diluted earnings per share calculations when the Company has a loss from continuing operations. Restricted stock units are treated as contingently issuable shares and are issued and outstanding only upon the satisfaction of the market conditions.

The following table presents a reconciliation of average shares outstanding:


	Three Months Ended March 31,
	2012		2011
Basic average shares outstanding		92,265,059		92,335,090
Net effect of stock options assumed to be exercised		—		13,071
Net effect of non-vested restricted stock assumed to be vested		—		30,577

Diluted average shares outstanding		92,265,059		92,378,738